The notion of balance of power, as any schoolchild or immigration test-taker knows, was central to our Founding Fathers’ conception of effective governance. Their deep insight on human behavior not only shaped our political institutions, but also cleanly translated to the design of modern corporations. As Berle and Means have noted, owners of a corporation that separates ownership from control have to remain ever-vigilant about expropriation by the controlling party. One way to achieve balance of power is to share ownership across individuals, so that no individual can unilaterally expropriate. However, the benefits of shared ownership are difficult to assess in public firms for two reasons. First, the large number of owners implies that each owner free rides with respect to the monitoring efforts of other owners (the individual owner may also not have the relevant expertise). Second, the liquid market of a company’s shares enables ownership structures to evolve endogenously. In equilibrium, the ownership structure of firms depends on their specific conditions and, as a result, it is difficult for an outsider to disentangle the effect of ownership structure from the effect of other firm characteristics.

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